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Today's Mortgage Market Deterioration

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Mortgage and Lending with Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 NMLS ID# 158606

Yields rose rather sharply on Thursday for the third straight day, leaving the curve slightly higher than Friday's close. The Paulson plan to stave off some foreclosures found criticism from both sides, those saying it's not broad enough and those saying it goes too far (isn't that the definition of the perfect compromise?). For detail on the plan, see the American Securitization Forum's website. In reality, the plan appears modest, not inconsistent with current documentation and fiduciary responsibilities, and constructive. FNMA priced its preferred stock deal, paying 8.25% (roughly 11.3% tax-equivalent) for the first three years until it will float. This morning, the November payroll report came in mostly as-expected. Payrolls rose 94,000 for the month versus expectations for an 80,000 increase. October's payroll growth was revised up only 4,000 but September's growth was revised down 52,000. The unemployment rate remained unchanged at 4.7%, expectations called for it to tick up to 4.8%. Average hourly earnings were surprisingly strong in November but were revised lower by a corresponding amount for October. Bond prices were weak ahead of the report and remain weak following the report. While still watching news reports, all eyes will now turn to Tuesday's FOMC meeting. The market is pricing in a 25% chance that the Fed will cut rates 50bp rather than 25bp. Surprisingly, more economists are predicting the Fed will leave rates unchanged than are predicting a 50bp cut with most expecting a 25bp ease.

Employment - The Skinny on Payrolls
BOTTOM LINE: A hard to read report with something for everyone, requiring interpretation by an octopus rather than a two-armed economist. Payroll gains roughly in line with expectations, but with a seemingly narrow distribution and not much of an increase in hours worked. On the stronger side, large gains in household employment nudge the unemployment rate down a bit on an unrounded basis.

KEY NUMBERS
Nonfarm payrolls +94K in Nov vs. GS +100K, consensus +80K
Unemployment rate 4.7% vs. GS and consensus 4.8%.
Average hourly earnings +0.5% (mom, +3.8% yoy) vs. GS and consensus +0.3%.

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